Bank customers will begin receiving texts warning them when their account balance is low, and will get annual statements showing how much their current account costs, under voluntary measures proposed by the government.

The changes, which come into effect next year, will include a buffer zone which means customers will no longer be charged for going over their limit – it is likely to be about £5-£10.

But consumer groups criticised the government for introducing only a voluntary agreement, warning that self-regulation in the banking industry has not worked in the past.

The Department for Business, Innovation and Skills (BIS) and HM Treasury announced the measures in its response to the government's review of consumer credit and personal insolvency. Balance alerts will be available from March 2012, while from September 2013 a guaranteed switching service will mean customers are able to switch banks within seven days.

Quicker switching was originally proposed in September 2011 in the Independent Commission on Banking report, which suggested a system that makes it easier to move accounts that is "free of risk and cost to customers".

BIS said most major banking groups had signed up to the measures, including Barclays, HSBC (and First Direct), Lloyds Banking Group (which includes Lloyds TSB, Halifax and Bank of Scotland), RBS (including Natwest) and Santander.

This means 85% of personal current account customers are set to benefit.

Store and credit cards

BIS also said retailers should no longer offer discounts on purchases when customers take out a store card, claiming they were being "tempted into expensive credit" by such deals.

But the government will not seek to impose a cap on interest rates offered by credit and store cards because this would price some consumers out of the market, and "could force individuals to seek unregulated or high cost credit".

Consumer minister Ed Davey said: "The package of measures we have set out will encourage consumers to make better credit decisions and strengthen protection where necessary – particularly for the most vulnerable.

"We are committed to responsible lending and will continue working with the industry to improve consumer protections, particularly in the high cost credit market where we are speaking to the industry to ensure that additional consumer protections are included in codes of practice."

Consumer Focus said the government should have introduced formal regulation of the payday loans industry, as well as caps on the interest charged by high cost credit providers.

Mike O'Connor, chief executive of Consumer Focus, said: "It is disappointing that these measures are voluntary and that there are no plans to legislate to protect consumers from the effects of unfair bank charges.

"Receiving text alerts and buffer zones are welcome moves, but the reality is that this is tinkering around the edges when substantive reforms are needed."

Which? executive director, Richard Lloyd, called the measures a "step in the right direction", but warned: "Customers will need to be persuaded that any voluntary agreement to improve overdraft charges will actually deliver the promised benefits."